What type of account to use?

brij2006 · February 2016

We have some money sitting in our savings account that is earmarked toward different things, and we're having a hard time trying to figure out what type of an account we should put this in. Any recommendations?

It's about $50,000 total. Some of that is our Efund, then the rest is earmarked to do some giving, and the rest is just for my comfort.

So we need to be able to have access to it in an emergency and be able to pull from it at least on a monthly basis.

Our savings at our credit union is a measly .1%. A CD obviously wouldn't be a good idea with what our intentions are with this money, but what other types of accounts am I not thinking of?

We do have a mutual fund open that I could add some of it to and pull within 3 days.

hoffse · February 2016

A CD could actually work if you built a ladder with it. The key is to have enough cash so that each month another installment becomes due.

As I said in the other thread rates aren't high enough for me to tie my money up for years. But I would probably do a 6-month ladder (6 installments) or a 12-month ladder (12 installments) if we had that much in our e-fund.

LillibetteV · February 2016

I use Ally for my emergency fund and absolutely love it. It's still a regular savings account, but since it's an online only bank they pay 1% compounded daily interest. It links to your regular checking account and transfers take a couple days to clear so it's still reasonably accessible, but not tempting either. I would worry about sticking it in the mutual fund just in case the market goes down.

cbee817 · February 2016

Did you try a local credit union at all? We keep our vacation savings account at one because they offer 0.75% interest with only a $2,500 minimum. We have our CD ladder there as well because their rates were way better than our bank that holds our checking accounts, regular savings, girls' savings accounts, and mortgage.

dragonstarjk · February 2016

I've opened online savings accounts with Discover and had about .8-1% compounded daily (similar to Ally mentioned above).

If you want to stick with a local bank, at least find one that offers a money market savings--they typically have higher minimum balance requirements but higher interest rates as well.

CuriousKiddosMama · February 2016

We went with discover savings account to. I think it's .9% interest, so a lot better than any banks around us. Plus we got a promo code in the mail for like a $100 bonus for opening our account (I bet you can find a bonus if you search online).

als1982 · February 2016

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

brij2006 · February 2016

als1982 said:

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

There's $19,000 earmarked for giving. The estate will be closing out soon and we will be adding an additional $6,500 to this.

I know @hoffse is more familiar with these, but my H was throwing out setting up a 103c (?) so we can give and take advantage of the tax write offs even if we give to an individual? Can someone explain this to me?

Also, doesn't a CD need to have the money held in it for 1+ years without being penalized for withdrawing from it?

hoffse · February 2016

brij2006 said:

als1982 said:

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

There's $19,000 earmarked for giving. The estate will be closing out soon and we will be adding an additional $6,500 to this.

I know @hoffse is more familiar with these, but my H was throwing out setting up a 103c (?) so we can give and take advantage of the tax write offs even if we give to an individual? Can someone explain this to me?

Also, doesn't a CD need to have the money held in it for 1+ years without being penalized for withdrawing from it?

Bolded 1: Are you talking about setting up a private foundation?

You can't just give money to any individual and get a tax write-off. There has to be some criteria that would qualify the transfer under 501(c)(3).

Private foundations have much stricter rules and more reporting requirements than the public charities you might be more familiar with. Your tax-write off is also lower. I agree with @als that a donor advised fund through a community foundation might work better for you if you want to direct that money somewhere specific. They will be more than happy to talk to you about what it entails and what the restrictions are.

You are talking about a lot of money, but not so much that setting up your own private foundation necessarily makes sense. You'll probably burn up a lot of that in legal fees just getting it set up. The last private foundation I set up was funded with $1M of seed money.

Bolded 2: Not if you are in a 6 or 9 month CD.

jessica490 · February 2016

We keep our savings money at CapitalOne360 online...the money takes 2-3 business days to transfer to and from our checking account. We are able to create different sub-account names. I'm not sure what the current interst rate is

hoffse · February 2016

Some additional info about private foundations:

It's true that PF's can make distributions/grants to individuals in ways that public charities cannot, but there has to be some compelling reason why THAT person gets the money, which fits within the PF's mission. Practically, it usually involves a lot of paperwork (ie: scholarship applications), committee oversight, etc. to make sure that everything is above-board. You have to be able to prove in an audit that it was arms-length.

If it's not arms-length, then you are facing a private inurement problem. Trust me, this is really really bad. Big penalties and all that.

So all of this is on top of stricter reporting requirements, smaller tax-write-offs, and things like distribution minimums.

If these rules weren't in place then people could just run gifts through a private foundation to get a tax-write off. Gift recipients don't have to report cash gifts in their gross income anyway, so if the giver got a write-off too that would be a double-dip.

It's a ton of work. If you want somebody specific to get the money, you should just give it to them and forego the tax write-off.

brij2006 · February 2016

hoffse said:

brij2006 said:

als1982 said:

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

There's $19,000 earmarked for giving. The estate will be closing out soon and we will be adding an additional $6,500 to this.

I know @hoffse is more familiar with these, but my H was throwing out setting up a 103c (?) so we can give and take advantage of the tax write offs even if we give to an individual? Can someone explain this to me?

Also, doesn't a CD need to have the money held in it for 1+ years without being penalized for withdrawing from it?

Bolded 1: Are you talking about setting up a private foundation?

You can't just give money to any individual and get a tax write-off. There has to be some criteria that would qualify the transfer under 501(c)(3).

Private foundations have much stricter rules and more reporting requirements than the public charities you might be more familiar with. Your tax-write off is also lower. I agree with @als that a donor advised fund through a community foundation might work better for you if you want to direct that money somewhere specific. They will be more than happy to talk to you about what it entails and what the restrictions are.

You are talking about a lot of money, but not so much that setting up your own private foundation necessarily makes sense. You'll probably burn up a lot of that in legal fees just getting it set up. The last private foundation I set up was funded with $1M of seed money.

Bolded 2: Not if you are in a 6 or 9 month CD.

Yes, that's what he was talking about. That we could throw that money into a fund and then let it sit and use the interest earned from it, to give each year. So pretty much putting $25k in it and whatever it makes that year, is how much we give. Rather than just having the lump sum sitting there and pulling from it when deciding to give.
Our thoughts were to maybe do 1-2 scholarships in my brothers' memory and use the interest from that money each year to fund them.

hoffse · February 2016

@Brij I gave you some additional info on private foundations above.

What you are describing sounds fine, but again - it's a lot of work to do everything correctly.

Here is a good intro book that can help walk you through it:

http://www.amazon.com/You-Want-Philanthropist-Successful-Foundation/dp/1492722332/ref=sr_1_1?ie=UTF8&qid=1456253768&sr=8-1&keywords=private+foundations

Also this one:

http://www.amazon.com/Managing-Foundations-Charitable-Trusts-Techniques/dp/1118038266/ref=pd_sim_14_1?ie=UTF8&dpID=51z4tInBOrL&dpSrc=sims&preST=_AC_UL160_SR106,160_&refRID=0GET94V2ANFKATM3W8HV

I think it could be a great idea, but I can't stress enough that you need to do your homework and make sure you are managing it under current IRS guidelines. I do a ton of private inurement work. Most of the time it's unintentional and people have no idea that they are engaging in it. It usually occurs because people get sloppy or they get carried away by what they think is a great idea. Being oblivious doesn't stop the penalties though.

als1982 · February 2016

brij2006 said:

hoffse said:

brij2006 said:

als1982 said:

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

There's $19,000 earmarked for giving. The estate will be closing out soon and we will be adding an additional $6,500 to this.

I know @hoffse is more familiar with these, but my H was throwing out setting up a 103c (?) so we can give and take advantage of the tax write offs even if we give to an individual? Can someone explain this to me?

Also, doesn't a CD need to have the money held in it for 1+ years without being penalized for withdrawing from it?

Bolded 1: Are you talking about setting up a private foundation?

You can't just give money to any individual and get a tax write-off. There has to be some criteria that would qualify the transfer under 501(c)(3).

Private foundations have much stricter rules and more reporting requirements than the public charities you might be more familiar with. Your tax-write off is also lower. I agree with @als that a donor advised fund through a community foundation might work better for you if you want to direct that money somewhere specific. They will be more than happy to talk to you about what it entails and what the restrictions are.

You are talking about a lot of money, but not so much that setting up your own private foundation necessarily makes sense. You'll probably burn up a lot of that in legal fees just getting it set up. The last private foundation I set up was funded with $1M of seed money.

Bolded 2: Not if you are in a 6 or 9 month CD.

Yes, that's what he was talking about. That we could throw that money into a fund and then let it sit and use the interest earned from it, to give each year. So pretty much putting $25k in it and whatever it makes that year, is how much we give. Rather than just having the lump sum sitting there and pulling from it when deciding to give.
Our thoughts were to maybe do 1-2 scholarships in my brothers' memory and use the interest from that money each year to fund them.

If that's the case, I would depost the lump sum into a Community Foundation. You'll want to look into their spending policy, but it would be safe to assume you'll generate 5% interest income annually from your principal deposit to give away. From there, I'd establish relationships with the schools where you want to offer scholarships. Check to make sure they will allow for one-time scholarships and that you don't have to create an endowment in their foundation (my institution does this, but I'm not sure if that's typical).

dragonstarjk · February 2016

brij2006 said:

als1982 said:

How much is earmarked for giving? If that is a significant portion, you could consider establishing an endowed fund at a local or regional community foundation.

There's $19,000 earmarked for giving. The estate will be closing out soon and we will be adding an additional $6,500 to this.

I know @hoffse is more familiar with these, but my H was throwing out setting up a 103c (?) so we can give and take advantage of the tax write offs even if we give to an individual? Can someone explain this to me?

Also, doesn't a CD need to have the money held in it for 1+ years without being penalized for withdrawing from it?

CDs can have as little as a 1-month maturity date, although the longer the term, the higher the interest you will earn. Also, smaller terms typically require a larger minimum amount.

brij2006 · February 2016

hoffse said:

@Brij I gave you some additional info on private foundations above.

What you are describing sounds fine, but again - it's a lot of work to do everything correctly.

Here is a good intro book that can help walk you through it:
http://www.amazon.com/You-Want-Philanthropist-Successful-Foundation/dp/1492722332/ref=sr_1_1?ie=UTF8&qid=1456253768&sr=8-1&keywords=private+foundations

Also this one:
http://www.amazon.com/Managing-Foundations-Charitable-Trusts-Techniques/dp/1118038266/ref=pd_sim_14_1?ie=UTF8&dpID=51z4tInBOrL&dpSrc=sims&preST=_AC_UL160_SR106,160_&refRID=0GET94V2ANFKATM3W8HV

I think it could be a great idea, but I can't stress enough that you need to do your homework and make sure you are managing it under current IRS guidelines. I do a ton of private inurement work. Most of the time it's unintentional and people have no idea that they are engaging in it. It usually occurs because people get sloppy or they get carried away by what they think is a great idea. Being oblivious doesn't stop the penalties though.

Thank you! I think it's definitely something we need to discuss a little more, but I'm thinking the tax write off isn't going to end up evening out the fee's to make sure we do it properly.

I'm trying to convince him that we put that $25k into our mutual fund and whatever it makes that year, that's how much we give. So if it makes 1% or 15%, we give that much to the scholarship program we have in place.

So far it isn't a set amount annually and we have not guaranteed the scholarship to be there each year. The scholarship was for $285/child to go to 4-H camp that my brother was very passionate about. We were able to sponsor 6 kids last summer through various things, but we want to make sure this is an option to continue with (if we can set it up right).

What type of account to use?

Re: What type of account to use?

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